Evaluating the effect of procurement practices on supplier compliance risk levels for commercial banks in Kenya
Date
2025
Authors
Mbugua, J. N.
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Publisher
Strathmore University
Abstract
Organizations are increasingly relying on external suppliers and third-party vendors for various services, including information technology, operations, and professional services. This has in turn posed a supplier risk to organizations, when they fail to manage supplier risks adequately leading to operational disruptions, data breaches, financial losses, and reputational damage, posing significant threats to stability and industry resilience. This study evaluates the effect procurement practices have on supplier compliance risk levels for Commercial Banks in Kenya. The study focused on three key aspects of procurement practices: Procurement planning, purchasing process and Contract management, while also examining bank size as a potential moderating variable. The research was guided by three specific objectives, each examining the effect of a particular procurement practice in managing supplier compliance risk levels in Commercial Banks in Kenya, with a fourth objective exploring the moderating effect of bank size. The theoretical framework was underpinned by the Risk Management Theory, Principal-Agent Theory and Transaction Cost Economics Theory, providing a comprehensive lens for analysis. Adopting a positivist philosophy and an explanatory research design, the study targeted Procurement Managers from thirty-eight Commercial Banks in Kenya. A census approach was adopted and included all the 38 commercial banks in Kenya, with 30 banks responding. Data collection employed questionnaires for quantitative data, with the study using both online and physical surveys to accommodate various work arrangements. Data analysis was conducted using SPSS, employing descriptive and inferential statistics, including regression and correlation analyses. Correlation tests found a strong positive correlation between procurement planning and supplier compliance risk levels (r=0.855, p=0.000) and moderate positive correlations between purchasing processes (r=0.668, p=0.000) and contract management (r=0.672, p=0.000) with supplier compliance risk levels. Regression analysis indicated that procurement planning had the strongest effect, explaining 73.1% of variance in supplier compliance risk levels. Purchasing processes and contract management showed moderate effects, explaining 44.6% and 45.2% of variance respectively. The combined model explained 74.3% of variance in supplier compliance risk levels. Hierarchical regression analysis revealed that bank size significantly moderates the relationship between procurement practices and supplier compliance risk levels. The model with interaction terms explained 81.1% of variance, with the strongest moderation effect observed for purchasing processes (β=0.373, p=0.000). The findings indicate that the positive effects of procurement practices on supplier compliance risk levels are amplified in smaller banks, suggesting that organizational context plays a crucial role in determining the effectiveness of procurement practices. In conclusion, the study established that procurement practices play a crucial role in managing supplier compliance risk levels in Kenyan commercial banks, with procurement planning emerging as the most influential factor.
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Citation
Mbugua, J. N. (2025). Evaluating the effect of procurement practices on supplier compliance risk levels for commercial banks in Kenya [Strathmore University]. http://hdl.handle.net/11071/16044